The bitcoin craze

Whatever the case, the so-called tulip mania has gone down as the first financial bubble of modern times. Many have succeeded it, and bubble-blowing, an art perfected by former Federal Reserve chief Alan Greenspan, has become the norm of economic management.

Not all crazes, though, come out of big banks and the Fed. Take the bitcoin, the digital currency that has gone viral since its introduction in 2009 by an anonymous group of programmers who call themselves Satoshi Nakamoto. The idea was to use the Internet as a financial lever that would bypass banks and governments.

Las Vegas odds

Like other pioneers of digital commerce, the Nakamoto consortium celebrated the Internet as a transparent, democratic medium that could deliver goods and services anywhere at lower cost and far greater speed. The bitcoin was seen as the logical next step in the process: a universal currency that would bring buyer and seller together without middlemen. All you needed was a little transoceanic trust— and, of course, bitcoins themselves. These could be purchased at market rates and, for those with a supply, “mined” by cracking computer codes for an access fee.

In short, you paid money up front to gamble your wits on getting more money in return. Vegas would love those odds.

In theory, only 21 million bitcoins will ultimately become available, thus pumping up their speculative value. The currency is in fact the commodity. Unlike the tulip, however, it lacks pretty colors or pleasing shapes. And it’s backed only by human credulity.

The mines themselves are computer banks that play to outwit miners with shifting algorithms. They function around the clock and require enormous outlays of energy as coolants, thus doing their bit for global warming as well. Essentially, they are casinos with a brain. Each bitcoin that’s released is tagged with a unique marker, thus enabling the taggers to track every purchase and transaction made with it. And you thought the National Security Agency was messing with you.

Anarchists’ dream

The original premise of the bitcoin, dear to anarchists and libertarians alike, was that elite control of the money supply by banks and governments is the principal engine of capitalist oppression. To liberate money was therefore to liberate humanity. This idea contains enough truth to make it seductive.

Early 19th-Century socialists identified community control of money as the key to an egalitarian society. The Internet, however, is not a community but a flux of users who may interact occasionally for common purposes but lack any cohesion or identity beyond the moment. A truly transparent currency would require stability, which is impossible in an unregulated global market predicated on users unknown to each other except through their transactions. Such a market is a recipe for speculation and an invitation to scamming. These effects have already occurred. They are not defects in the bitcoin system; they are its essence.

The bitcoin is in fact the epitome of speculative capitalism— the same animal that produced the Crash of 2008, the Great Depression and most other economic collapses back to the tulip. It’s a bettor’s chip, and designed as such. Its appearance marks both the ultimate fetishization of money and its radical dematerialization.

Is it safe?

A fetish, you’ll recall, is an object of no intrinsic value that’s presumed to possess magical properties. An unsecured currency answers precisely to this definition. But the bitcoin is less than an object; it’s simply a digital streaming. Anyone in a position to reconfigure the stream can raise or lower the supply. In theory, safeguards have been built into the system to prevent this tampering. But if the digital age has taught us anything, it is that no encryption device is safe for long.

What backs any currency is the economy it serves. As the bitcoin is free-floating, so it is unattached to anything that validates its objects of exchange, which to all intents and purposes assume the character of contraband. The name for a system like this is a hustle. The bitcoin’s value, completely divorced from any productive base, is simply in the beholder’s eye. If capitalism is finally about reducing all value to money per se, then the bitcoin represents the perfection of this process.